Personal Income Tax Relief

â¢
increase the base and maximum amounts of the low and middle income
tax offset to $255 and $1,080, respectively, for the 2018-19,
2019-20, 2020-21 and 2021-22 income years; and

â¢
increase the amount of the low income tax offset from
2022-23.

Schedule 2 to this Bill
amends the income tax law to reduce the tax payable by individuals
in 2022-23 and later income years by increasing income tax rate
thresholds and in 2024-25 and later income years by lowering income
tax rates.

Date of effect : The changes to the low and
middle income tax offset apply in the 2018-19, 2019-20, 2020-21 and
2021-22 income years.

The changes to income tax
thresholds, as well as to the low income tax offset, apply to the
2022-23 income year and later income years.

The changes to income tax
rates apply to the 2024-25 income year and later income years.

Proposal announced : This Bill fully implements
the measure ‘Lower taxes for hard-working Australians:
Building on the Personal Income Tax Plan’ from the 2019-20
Budget.

Financial impact : As at the 2019-20 Budget,
this measure is estimated to reduce revenue by $158 billion
over the period from 2019-20 to 2029-30 and $19.5 billion over the
forward estimates period, comprising:

Outline of chapter

â¢
increase the base and maximum amounts of the low and middle income
tax offset to $255 and $1,080, respectively, for the 2018-19,
2019-20, 2020-21 and 2021-22 income years; and

â¢
increase the amount of the low income tax offset from
2022-23.

1.2
Schedule 2 to this Bill amends the income tax law to reduce the tax
payable by individuals in 2022-23 and later income years by
increasing income tax rate thresholds and in 2024-25 and later
income years by lowering income tax rates.

Context of amendments

Income tax rates for individuals and other entities

1.3
An entity’s liability to pay income tax in Australia on a set
amount of taxable income is calculated by reference to various
rates and thresholds. As Australia has a progressive income tax
system for individuals, higher rates of tax are payable by
individuals as their income increases beyond particular
thresholds.

1.4
Currently, section 12 of the Income Tax Rates Act 1986
provides that individuals and other entities not dealt with
elsewhere in the Act must generally pay income tax at the rates set
out in Schedule 7 to that Act. Under Schedule 7, in 2018-19
Australian resident taxpayers are generally:

â¢
not subject to tax on the part of their ordinary taxable income
that does not exceed $18,200 (the tax-free threshold);

â¢
subject to tax at a rate of 19 per cent on the part of their
taxable income that exceeds $18,200 but does not exceed
$37,000;

â¢
subject to tax at a rate of 32.5 per cent on the part of their
taxable income that exceeds $37,000 but does not exceed
$90,000;

â¢
subject to tax at a rate of 37 per cent on the part of their
taxable income that exceeds $90,000 but does not exceed $180,000;
and

â¢
subject to tax at a rate of 45 per cent on the part of their
taxable income that exceeds $180,000.

1.5
Foreign resident taxpayers are generally subject to tax at a rate
of:

â¢
32.5 per cent on the part of their taxable income that does not
exceed $90,000;

â¢
37 per cent on the part of their taxable income that exceeds
$90,000 but does not exceed $180,000; and

â¢
45 per cent on the part of their taxable income that exceeds
$180,000.

1.6
Part III of Schedule 7 sets out special rules that apply to the
income of working holiday-makers in Australia. Taxable income
from these activities (subsequently referred to as working
holiday-maker taxable income) is generally taxed at the tax
rates for Australian residents, whether or not the individual is an
Australian resident. However, working holiday-makers do not
benefit from the tax-free threshold and the rate of tax that
applies to income not exceeding $37,000 is 15 per cent.

Tax offsets

1.7
The income tax law provides for a number of tax offsets -
reductions in the income tax otherwise payable by taxpayers that
satisfy specified requirements. Many offsets are contained in
Division 61 of the ITAA 1997.

1.8
Currently, section 159N of the ITAA 1936 provides a tax offset
(referred to in the terminology of that Act as a rebate) for low
income individuals (and certain trustees taxed in the place of
these individuals) - more commonly known as the low income
tax offset or LITO - that is available in income years before
the 2022-23 income year.

1.9
Taxpayers are entitled to this offset for an income year if during
that income year their taxable income (the share of the income of
the trust going to the relevant beneficiary in the case of a
trustee) is less than $66,667 and they are an Australian resident.
The amount of the offset (the amount by which a taxpayer’s
tax payable is reduced) is $445, reduced by 1.5 cents for every
dollar of the amount by which their taxable income exceeds
$37,000.

1.10
Subdivision 61-D of the ITAA 1997 provides for a tax offset -
the low and middle income tax offset - for lower income individuals
(and certain trustees taxed in the place of these individuals) in
the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

1.11
The amount of the low and middle income tax offset is:

â¢
for taxpayers with taxable income not exceeding
$37,000—$200;

â¢
for taxpayers with taxable income exceeding $37,000 but not
exceeding $48,000—$200 plus 3 per cent of the amount of
income that exceeds $37,000;

â¢
for taxpayers with taxable income exceeding $48,000 but not
exceeding $90,000—$530; and

â¢
for taxpayers with taxable income exceeding $90,000—$530 less
1.5 per cent of the amount of income that exceeds $90,000.

1.12
Entitlement to the low and middle income tax offset is in addition
to the LITO. Both the low and middle income tax offset and the LITO
cease to be available in 2022-23. Both are to be replaced by a new
low income tax offset under Subdivision 61-D. The new low income
tax offset is largely the same as the existing LITO, with the
amount of the offset set at:

â¢
for taxpayers with taxable income not exceeding
$37,000—$645;

â¢
for taxpayers with taxable income exceeding $37,000 but not
exceeding $41,000—$645 less 6.5 per cent of the amount of the
income that exceeds $37,000; and

â¢
for taxpayers with taxable income exceeding $41,000 but not
exceeding $66,667—$385 less 1.5 per cent of the amount of the
income that exceeds $41,000.

1.13
The replacement of the existing LITO and the low and middle income
tax offset with the new LITO coincides with a range of changes to
the income tax rates and thresholds as outlined in the
Government’s Personal Income Tax Plan that was announced in
the 2018-19 Budget.

Summary of new law

1.14
Schedule 1 to this Bill amends the ITAA 1997 to:

â¢
increase the base and maximum amounts of the low and middle income
tax offset for the 2018-19, 2019-20, 2020-2021 and 2021-22
income years to $255 (from $200) and $1,080 (from $530),
respectively, and make related changes to taper rates and
thresholds; and

â¢
change the base amount, taxable income thresholds and taper rates
for the new low income tax offset for 2022-23 and later income
years ensuring all taxpayers remain better off following the
cessation of the low and middle income tax offset in
2022-23.

1.15
Schedule 2 to this Bill amends the Income Tax Rates Act 1986
to:

â¢
for the 2022-23 income year and later income years, increase the
amount of taxable income subject to the first personal rate of
income tax of 19 per cent to include an individual’s taxable
income between $18,201 and $45,000 (rather than $41,000);
and

â¢
for the 2024-25 income year and later income years, reduce the
second personal rate of income tax to 30 per cent
(from 32.5 per cent).

1.16
Schedule 2 also makes equivalent changes for other entities that
are taxed like individuals as well as to the rates and thresholds
that apply to foreign residents and working holiday-makers.

Comparison of key features of
new law and current law

New law

Current law

Australian
resident individuals (and certain trustees) with taxable
income that does not exceed
$126,000 will be entitled to the low and
middle income tax offset for
the 2018-19, 2019-20, 2020-21 and 2021-22 income years.

The amount
of the low and middle income tax offset is:

â¢ for taxpayers with income not
exceeding $37,000— $255 ;

â¢ for taxpayers with income
exceeding $37,000 but not exceeding
$48,000— $255 plus 7.5 per
cent of the amount of the income that exceeds
$37,000;

â¢ for taxpayers with income
exceeding $48,000 but not exceeding
$90,000— $1080 ; and

â¢ for taxpayers with income
exceeding $90,000— $1080 less 3 per
cent of the amount of the income that exceeds
$90,000.

Entitlement to the low and middle income tax offset is in addition to the existing
LITO.

Australian
resident individuals (and certain trustees) with taxable
income that does not exceed
$125,333 will be entitled to the low and middle income
tax offset for the 2018-19,
2019-20, 2020-21 and 2021-22 income years.

The amount
of the low and middle income tax offset is:

â¢ for taxpayers with income not
exceeding $37,000—$200;

â¢ for taxpayers with income
exceeding $37,000 but not exceeding $48,000—$200 plus
3 per cent of the amount of the income that exceeds
$37,000;

â¢ for taxpayers with income
exceeding $48,000 but not exceeding $90,000—$530;
and

â¢ for taxpayers with income
exceeding $90,000—$530 less 1.5 per cent of the amount
of the income that exceeds $90,000.

Entitlement to the low and middle income tax offset is in addition to the existing
LITO.

For 2022-23 and later income
years, individuals with taxable income that does not exceed $66,667
(as well as certain trustees taxed on behalf of individuals) will
be entitled to the new low income tax offset.

The base
amount of the new low income tax offset is $700 .
However, this amount is reduced by 5 per cent of the
amount by which the taxpayer’s taxable income exceeds $37,500 but
does not exceed $45,000 and by 1.5 per cent of the
amount by which the taxpayer’s taxable income exceeds
$45,000 .

For 2022-23 and later income
years, individuals with taxable income that does not exceed $66,667
(as well as certain trustees taxed on behalf of individuals) will
be entitled to the new low income tax offset.

The base
amount of the new low income tax offset is $645. However, this
amount is reduced by 6.5 per cent of the amount by which the
taxpayer’s taxable income exceeds $37,000 but does not exceed $41,000 and by
1.5 per cent of the amount by which the taxpayer’s
taxable income exceeds
$41,000.

For
2022-23 and 2023-24, the rate of tax on the amount of the taxable
income of a resident individual that:

â¢ exceeds $18,200 but does not
exceed $45,000 is 19 per cent;

â¢ exceeds $45,000
but does not exceed $120,000 is 32.5 per cent;

â¢ exceed $120,000 but does not
exceed $180,000 is 37 per cent; and

â¢ exceeds $180,000 is 45 per
cent.

For 2024-25 and later income
years the rate of tax on the amount of the taxable income of a
resident individual that:

â¢ exceeds $18,200 but does not
exceed $45,000 is 19 per cent;

â¢ exceeds $45,000
but does not exceed $200,000 is 30 per cent ;
and

â¢ exceeds $200,000 is 45 per
cent.

Equivalent changes apply to other entities
that are taxed like individuals.

For
2022-23 and 2023-24, the rate of tax on the amount of the taxable
income of a resident individual that:

â¢ exceeds $18,200 but does not
exceed $41,000 is 19 per cent;

â¢ exceeds $41,000 but does not
exceed $120,000 is 32.5 per cent;

â¢ exceed $120,000 but does not
exceed $180,000 is 37 per cent; and

â¢ exceeds $180,000 is 45 per
cent.

For 2024-25 and later income
years the rate of tax on the amount of the taxable income of a
resident individual that:

â¢ exceeds $18,200 but does not
exceed $41,000 is 19 per cent;

â¢ exceeds $41,000 but does not
exceed $200,000 is 32.5 per cent; and

â¢ exceeds $200,000 is 45 per
cent.

Equivalent rules apply to other entities that are taxed like
individuals.

For
2022-23 and 2023-24, the rate of tax on the amount of the taxable
income of a foreign resident individual that:

â¢ does not exceed $120,000 is
32.5 per cent;

â¢ exceeds $120,000 but does not
exceed $180,000 is 37 per cent;

â¢ exceeds $180,000 is 45 per
cent.

For 2024-25 and later income
years the rate of tax on the amount of the taxable income of a
foreign resident individual that:

â¢ does not exceed $200,000 is
30 per cent ; and

â¢ exceeds $200,000 is 45 per
cent.

Equivalent changes apply to other entities
that are taxed like individuals.

For
2022-23 and 2023-24, the rate of tax on the amount of the taxable
income of a foreign resident individual that:

â¢ does not exceed $120,000 is
32.5 per cent;

â¢ exceeds $120,000 but does not
exceed $180,000 is 37 per cent;

â¢ exceeds $180,000 is 45 per
cent.

For 2024-25 and later income
years the rate of tax on the amount of the taxable income of a
foreign resident individual that:

â¢ does not exceed $200,000 is
32.5 per cent; and

â¢ exceeds $200,000 is 45 per
cent.

Equivalent rules apply to other entities that
are taxed like individuals.

For
2022-23 and 2023-24, the rate of tax on the amount of the taxable
income of a working holiday maker that:

â¢ does not exceed
$45,000 is 15 per cent;

â¢ exceeds $45,000
but does not exceed $120,000 is 32.5 per cent;

â¢ exceed $120,000 but does not
exceed $180,000 is 37 per cent; and

â¢ exceeds $180,000 is 45 per
cent.

For 2024-25 and later income
years the rate of tax on the amount of the taxable income of a
working holiday maker that:

â¢ does not exceed
$45,000 is 15 per cent;

â¢ exceeds $45,000
but does not exceed $200,000 is 30 per cent ;
and

â¢ exceeds $200,000 is 45 per
cent.

For
2022-23 and 2023-24, the rate of tax on the amount of the taxable
income of a working holiday maker that:

â¢ does not exceed $41,000 is 15
per cent;

â¢ exceeds $41,000 but does not
exceed $120,000 is 32.5 per cent;

â¢ exceed $120,000 but does not
exceed $180,000 is 37 per cent; and

â¢ exceeds $180,000 is 45 per
cent.

For 2024-25 and later income
years the rate of tax on the amount of the taxable income of a
working holiday maker that:

â¢ does not exceed $41,000 is 15
per cent;

â¢ exceeds $41,000 but does not
exceed $200,000 is 32.5 per cent; and

â¢ exceeds $200,000 is 45 per
cent.

Detailed explanation of new law

1.17
This Bill amends the income tax law to:

â¢
increase the base and maximum amount of the low and middle income
tax offset for the 2018-19, 2019-20, 2020-21 and 2021-22 income
years;

â¢
make changes to the resident income tax thresholds (and the
corresponding thresholds for working holiday makers) and the new
low income tax offset from the 2022-23 income year to ensure that
no taxpayers are worse off following the cessation of the low and
middle income tax offset; and

â¢
reduce the second resident personal tax rate (and the corresponding
rates for foreign residents and working holiday makers) to 30 per
cent (from 32.5 per cent) from the 2024-25 income year.

Increasing the low and middle income tax offset

Low and middle income tax offset

1.18
Schedule 1 to the Bill amends the ITAA 1997 to:

â¢
increase the base amount of the low and middle income tax offset to
$255 from $200; and

â¢
increase the maximum amount of the low and middle income tax offset
to $1,080 from $530.

[Schedule 1, item
2, the table in subsection 61-107(1) of the ITAA
1997]

1.19
However, the low and middle income tax offset is still intended to
provide the maximum benefit to eligible taxpayers with taxable
income in the same range.

1.20
To ensure this is the case, Schedule 1 amends the rate at which the
offset increases from the new base rate of $255 to be 7.5 per cent
(rather than 3 per cent) of the amount by which the
taxpayer’s income exceeds $37,000. It also amends the rate at
which the offset is reduced when a taxpayer’s income exceeds
$90,000 to be 3 per cent (rather than 1.5 per cent) of
the amount by which the taxpayer’s income exceeds $90,000.
[Schedule 1, item 2, items 2 and 4 of the table
in subsection 61-107(1) of the ITAA 1997]

1.21
Schedule 1 also amends the maximum amount of taxable income a
taxpayer can receive for an income year while still being entitled
to the low and middle income tax offset to be $126,000 (rather than
$125,333). This change makes the eligibility threshold consistent
with the new taper rates. [Schedule 1, item
1, paragraphs 61-105(1)(b) and (2)(c) of the ITAA
1997]

Related changes

1.22
The low and middle income tax offset is a temporary tax offset that
was introduced to provide immediate assistance to low and middle
income earners. It ceases to apply with respect to the 2022-23
income year and later income years. After this time, the changes
made to income tax thresholds and the new low income tax offset
introduced as part of the Government’s Personal Income Tax
Plan that was announced in the 2018-19 Budget ensure that all
recipients of the offset receive at least an equivalent reduction
in their tax liability.

1.23
With the increase in the maximum amount of the low and middle
income tax offset, it is possible that, absent further change,
taxpayers receiving the offset might not receive a reduction in
their tax liability that is at least equivalent to the benefit
provided by the offset.

1.24
Therefore, Schedules 1 and 2 amend the ITAA 1997 and the Income
Tax Rates Act 1986 for 2022-23 and later income years to:

â¢
increase to $45,000 (from $41,000) the amount of income an
Australian resident individual or working holiday maker can earn
that is subject to the relevant first personal rate of tax (19 per
cent for Australian residents and 15 per cent for working holiday
makers) [Schedule 2, items 1, 2, 3 and 4, item 1 of the
tables in Clause 1 of Part I and item 1 of the tables in Clause 1
of Part III of Schedule 7 to the Income Tax Rates Act
1986] ; and

â¢
amend the amount of the new low income tax offset so that the
amount of the offset for an eligible taxpayer with taxable
income:

-
not exceeding $37,500 is increased to $700 (from $645);

-
exceeding $37,500 but not exceeding $45,000 (rather than $41,000)
is $700 less 5 per cent (rather than 6.5 per cent ) of the amount
by which a taxpayer’s taxable income exceeds $37,500; and

-
exceeding $45,000 (rather than $41,000) is $325 (rather than $385)
less 1.5 per cent of the amount by which a taxpayer’s
taxable income exceeds $45,000.

[Schedule 1, item 3, the table in subsection
61-115(1) of the ITAA 1997]

1.25
The effect of those changes is to ensure that all taxpayers
receiving the low and middle income tax offset before 2022-23
receive a reduction in their income tax payable that is at least
equivalent to the benefit they received from that tax offset.

1.26
Schedule 2 amends the Income Tax Rates Act 1986 to reduce
the second Australian resident personal tax rate (defined in that
Act as the second resident personal tax rate) from 32.5 per cent to
30 per cent for 2024-25 and later income years. It also makes
equivalent changes to the rates for working holiday maker taxable
income. [Schedule 2, items 1, 2, 3 and 4, the tables
in Clause 1 of Part I and the tables in Clause 1 of Part III of
Schedule 7 to the Income Tax Rates Act 1986]

1.27
While no direct amendment is made to the rates of income tax
payable by foreign resident individuals and certain other
taxpayers, the relevant rate of tax is already directly linked to
the second Australian resident personal tax rate and so the
reduction in rate also applies for these taxpayers.

Application and transitional provisions

1.28
The Bill commences on the day after Royal Assent. [Clause
2]

1.29
The amendments made by Schedule 1 to the Bill to the low and middle
income tax offset apply in the 2018-19 income year and later income
years until the cessation of the tax offset in the 2022-23 income
year. [Schedule 1, item 4]

1.30
This ensures that all eligible taxpayers receive an immediate
benefit from the increase to the offset. While the change in the
offset is retrospective, it is wholly beneficial to taxpayers.
Increasing the maximum amount of the offset simply increases the
amount by which taxpayers’ income tax liability is
reduced.

1.31
The amendments made by Schedule 1 to the Bill to the amount of the
new low income tax offset apply in the 2022-23 income year and
later income years, consistent with the existing application of
that table (see section 61-110 of the ITAA 1997).

1.32
The amendments made by Schedule 2 to the Bill to income tax rates
and thresholds apply to either the 2022-23 and 2023-24 income years
or the 2024-25 income year and later income years as set out
above.

Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011

Treasury Laws Amendment (Tax Relief So Working Australians
Keep More of Their Money) Bill 2019

2.1
This Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in
section 3 of the Human Rights (Parliamentary Scrutiny) Act
2011 .

Overview

2.2
Schedule 1 to this Bill amends the ITAA 1997 to:

â¢
increase the base and maximum amounts of the low and middle income
tax offset for the 2018-19, 2019-20, 2020-2021 and 2021-22 income
years to $255 (from $200) and $1,080 (from $530), respectively, and
make related changes to taper rates and thresholds; and

â¢
change the base amount, taxable income thresholds and taper rates
for the new low income tax offset for 2022-23 and later income
years, ensuring all taxpayers remain better off following the
cessation of the low and middle income tax offset in
2022-23.

2.3
Schedule 2 to this Bill amends the Income Tax Rates Act 1986
to:

â¢
for the 2022-23 income year and later income years, increase the
amount of taxable income subject to the first personal rate of
income tax of 19 per cent to include an individual’s taxable
income between $18,201 and $45,000 (rather than
$41,000).

â¢
for the 2024-25 income year and later income years, reduce the
second personal rate of income tax to 30 per cent
(from 32.5 per cent); and

2.4
Schedule 2 also makes equivalent changes for other entities that
are taxed like individuals as well as to the rates and thresholds
that apply to foreign residents and working holiday-makers.

2.5
Together these amendments reduce the income tax burden faced by
taxpaying individuals.

Human rights implications

2.6
This Bill does not engage any of the applicable rights or freedoms.
While the provisions relating to the low and middle income tax
offset apply retrospectively, they do so in a way that is wholly
beneficial for affected entities.

Conclusion

2.7
This Bill is compatible with human rights as it does not raise any
human rights issues.